EXHIBIT 10.26
EXECUTION COPY
June 22, 2004
Trimaran Fund Management, L.L.C.
Trimaran Fund II, L.L.C.
Trimaran Parallel Fund II, L.P.
Trimaran Capital, L.L.C.
CIBC Employee Private Equity Partners (Trimaran)
CIBC MB Inc.
425 Lexington Avenue
Third Floor
New York, NY 10017
Attention: Steven Flyer
JLL Partners Inc.
450 Lexington Avenue
Suite 3350
New York, NY 10017
Attention: Jeffrey C. Lightcap
TPG GenPar III, L.P.
TPG GenPar IV, L.P.
TPG IASIS III LLC
TPG IASIS IV LLC
TPG IASIS Co-Invest I LLC
TPG IASIS Co-Invest II LLC
301 Commerce St.
Suite 3300
Fort Worth, TX 76102
Attention: John Viola
Ladies and Gentlemen:
This management services agreement (the "Agreement") sets forth the
terms and conditions of certain fee arrangements among Trimaran Fund Management,
L.L.C. ("Trimaran"), JLL Partners Inc. ("JLL"), TPG GenPar III, L.P. ("TPG
III"), TPG GenPar IV, L.P. ("TPG IV") (collectively, the "Sponsors") and IASIS
Healthcare LLC ("IASIS LLC"), a limited liability company whose sole member is
IASIS Healthcare Corporation (the "Company"), a corporation wholly owned by
IASIS Investment LLC ("Purchaser"), which in turn is wholly owned, in the
aggregate, by Trimaran Fund II, L.L.C., Trimaran Parallel Fund II, L.P.,
Trimaran Capital, L.L.C., CIBC Employee Private Equity Partners (Trimaran), CIBC
MB Inc., JLL/IASIS II, LLC, a limited liability company controlled by JLL, and
TPG IASIS III LLC, TPG IASIS IV LLC, TPG IASIS Co-Invest I LLC and TPG IASIS
Co-Invest II LLC (collectively, the "Co-Investors").
1. TRANSACTION FEE. Upon the completion of the acquisition of the
Company by the Purchaser (the "Closing Date"), IASIS LLC shall pay a transaction
fee, equal in the aggregate to $15,000,000, as follows: (a) $3,180,593 to TPG
III, in respect of the investment by TPG IASIS III LLC; (b) $8,694,407 to TPG
IV, $5,089,496 of which is in respect of the investment by TPG IASIS IV LLC and
the remainder of which is in respect of the investment by TPG IASIS Co-Invest I
LLC and TPG IASIS Co-Invest II LLC; (c) $2,500,000 to JLL and (d) $625,000 to
Trimaran or, in each case, to their respective designees, in immediately
available funds. In addition to the foregoing, in the event TPG III, TPG IV or
their respective affiliates shall become entitled to receive any other
transaction fees in connection with their activities on behalf of the Company,
IASIS LLC, or their respective subsidiaries, JLL shall be entitled to receive
payment of 17.0163% of the total amount of any such transaction fees; provided
that JLL shall no longer be entitled to any portion of such transaction fees in
the event, as of any date, (i) JLL (together with its affiliates) does not hold
at least twenty-five percent (25%) of the aggregate number of membership units
of Purchaser issued to JLL (or any of its affiliates) on the Closing Date, and
(ii) the TPG Vehicles (which term, for purposes of this Agreement, shall have
the meaning assigned to it in the Amended and Restated Limited Liability Company
Operating Agreement of Purchaser, dated the date hereof (the "LLC Agreement"))
collectively hold at least twenty-five percent (25%) of the aggregate number of
membership units of Purchaser issued to the TPG Vehicles on the Closing Date;
and, provided further, however, that the parties hereto acknowledge that none of
Trimaran Fund Management, L.L.C. or any of its affiliates, by virtue of signing
this Agreement, endorses the payment of any transaction fee after the date
hereof.
2. MONITORING FEE. (a) On the first day of each fiscal quarter of
IASIS LLC following the Closing Date, IASIS LLC shall pay to TPG III, TPG IV and
JLL (or their respective designees), in exchange for certain consulting and
advisory services to be provided by TPG III, TPG IV and JLL to IASIS LLC (or any
of its affiliates), a monitoring fee (the "Monitoring Fee") for such fiscal
quarter, equal to the lesser of (i) 0.0625% of the budgeted net revenue of IASIS
LLC for the fiscal year in which such fiscal quarter falls, as approved by the
management of IASIS LLC, and (ii) $1,250,000. The Monitoring Fee shall be
divided as follows: (i) JLL shall be entitled to 17.0163%, (ii) TPG III shall be
entitled to 22.2263%, and (iii) TPG IV shall be entitled to 60.7574%, of which
58.5376% will be received in respect of consulting and advisory services
performed on behalf of TPG IASIS IV LLC and the remainder will be received in
respect of consulting and advisory services performed on behalf of TPG IASIS
Co-Invest I LLC and TPG IASIS Co-Invest II LLC. Notwithstanding the allocation
set forth above, JLL shall no longer be entitled to any portion of the
Monitoring Fee in the event, as of any date, (i) JLL (together with its
affiliates) does not hold at least twenty-five percent (25%) of the aggregate
number of membership units of Purchaser issued to JLL (or any of its affiliates)
on the Closing Date, and (ii) the TPG Vehicles collectively hold at least
twenty-five percent (25%) of the aggregate number of membership units of
Purchaser issued to the TPG Vehicles on the Closing Date. In such an event, the
portion of the Monitoring Fee otherwise payable to JLL shall be allocated to TPG
III and TPG IV in proportion to their relative ownership percentages in
Purchaser.
(b) In addition to the Monitoring Fee, IASIS LLC agrees to pay or
reimburse TPG III, TPG IV and JLL for all reasonable disbursement and
out-of-pocket expenses (including, without limitation, costs of travel, postage,
deliveries and communications and fees
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and expenses of counsel, accountants and consultants) incurred by them or their
respective affiliates for the account of IASIS LLC (or any of its affiliates),
or in connection with the performance of the consulting and advisory services
contemplated by the preceding clause.
(c) The parties hereto acknowledge and agree that the Monitoring
Fees constitute "Subordinated Management Fees" as defined in the credit
agreement dated as of the Closing Date among the Company, IASIS LLC, certain
subsidiaries of the Company, the financial institutions listed therein as
Lenders, Citigroup Global Markets Inc. and Bank of America Securities LLC, as
joint lead arrangers and joint book runners, Citicorp North America, Inc. as
syndication agent, Bank of America, N.A., as administrative agent, and Goldman
Sachs Credit Partners L.P., Merrill Lynch Capital Corp., and Lehman Commercial
Paper Inc., as co-documentation agents (the "Credit Agreement"), and shall not
accrue or be paid by IASIS LLC to TPG III, TPG IV or JLL in the circumstances
described in such defined term. If any amount shall be paid by IASIS LLC in
violation of either the (a) indenture dated June 22, 2004, governing the eight
and three-quarter percent (8 3/4%) senior subordinated notes due in 2014 and
issued by IASIS LLC and IASIS Capital Corporation, a Delaware corporation, or
(b) the Credit Agreement (each a "Financing Agreement"), such amount shall be
held in trust by the payee for the benefit of the obligees under the Financing
Agreements. The provisions of this Agreement relating to the subordination of
the Subordinated Management Fees shall not be amended, modified, waived or
terminated without the written consent of the Administrative Agent (as defined
in the Credit Agreement).
3. DEFERRAL. Any Monitoring Fee that would have been payable to
TPG III, TPG IV and JLL pursuant to paragraph 2 above absent the restrictions,
if any, in the Financing Agreements (the "Deferred Fees") shall accrue upon the
immediately succeeding period in which such amounts could, consistent with the
Financing Agreements, be paid, and shall be paid in such succeeding period (in
addition to such other amounts that would otherwise be payable at such time) in
the manner set forth in paragraph 2 as of the date of such accrual.
4. INDEMNITY. The Company and IASIS LLC (or any of their
respective successors) (the "Indemnifying Parties") jointly agree to indemnify
and hold harmless each Sponsor, each Co-Investor, each member thereof, each
limited or general partner, shareholder or member of each such member, each
limited or general partner, shareholder or member of each such limited or
general partner, shareholder or member, the affiliates of any of the foregoing
and the directors, officers, employees, agents, fiduciaries and other
representatives of any of the foregoing (collectively, the "Indemnified
Parties"), to the fullest extent permitted by law, from and against any and all
losses, penalties, judgments, suits, costs, claims, liabilities, damages and
expenses (including, without limitation, reasonable attorneys' fees and
disbursements) (collectively, "Losses"), incurred by, imposed upon or asserted
against any of the Indemnified Parties as a result of, relating to or arising
out of, any litigation, claims, suits or proceedings to which such Indemnified
Party is made a party (other than as a plaintiff (unless otherwise agreed by the
board of directors of the Company or to enforce the provisions of this Section
4) or any penalties, costs, claims, liabilities, damages or expenses suffered by
such Indemnified Party, in each case arising from or relating to this Agreement
or any investment, whether direct or indirect, in the securities of the Company
by any Indemnified Parties, or any related transactions or the operations of any
Indemnified Parties (or any of their respective successors or subsidiaries),
except for any such Losses arising on account of such Indemnified Party's gross
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negligence or willful misconduct, and if and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Indemnifying Parties hereby
agree to make the maximum contribution to the payment and satisfaction of each
of the Losses which is permissible under applicable law. Each such Indemnified
Party shall be reimbursed for all indemnified Losses as they are incurred;
provided, that if a final and non-appealable judicial determination shall be
made that such Indemnified Party is not entitled to be indemnified for Losses,
such Indemnified Party shall repay to the Indemnifying Parties the amount of
such Losses for which the Indemnifying Parties reimbursed such Indemnified
Party.
5. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed within that state.
6. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same instrument.
7. AMENDMENTS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified, waived or terminated
without the written consent of each Sponsor.
8. SURVIVAL. The termination of this Agreement shall not relieve
a party from liability for any breach of this Agreement on or prior to
termination. Paragraphs 4 through 9 shall survive any termination of this
Agreement.
9. SEVERABILITY. If any provision of this Agreement shall be held
to be invalid, illegal or unenforceable, such provision shall be construed by
limiting it so as to be valid, legal and enforceable to the maximum extent
permitted by law; the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
10. ENTIRE AGREEMENT. This Agreement (together with the Investor
Rights Agreement, dated the date hereof, by and between Purchaser and the
Company, and the LLC Agreement) embody the entire agreement and understanding of
the parties and supersedes all prior agreements and understandings among the
parties and any of their affiliates with respect to the subject matter hereof
(including, without limitation, the commitment letters executed by the
Co-Investors (or their affiliates)).
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If the foregoing is in accordance with your understanding and agreement,
please sign and return the duplicate of this Agreement enclosed herewith,
whereupon this Agreement shall constitute a binding agreement with respect to
the matters set forth herein.
Sincerely,
IASIS Healthcare LLC
By: IASIS Healthcare Corporation
its sole member
By: /s/ David R. White
------------------------------
Name: David R. White
Title: Chairman and Chief Executive
Officer
Accepted and agreed as of the date first set forth above:
TRIMARAN FUND II, L.L.C.
By: Trimaran Fund Management, L.L.C.
its investment manager
By: /s/ Jay Bloom
---------------------------------
Name:
Title:
TRIMARAN PARALLEL FUND II, L.P.
By: Trimaran Fund Management, L.L.C.
its investment manager
By: /s/ Jay Bloom
---------------------------------
Name:
Title:
TRIMARAN CAPITAL L.L.C.
By: Trimaran Fund Management, L.L.C.
its investment manager
By: /s/ Jay Bloom
---------------------------------
Name:
Title:
CIBC EMPLOYEE PRIVATE EQUITY PARTNERS (TRIMARAN)
By: Trimaran Fund Management, L.L.C.
its investment manager
By: /s/ Jay Bloom
---------------------------------
Name:
Title:
CIBC MB INC.
By: Trimaran Fund Management, L.L.C.
its investment manager
By: /s/ Jay Bloom
---------------------------------
Name:
Title:
JLL PARTNERS INC.
By: /s/ Paul S. Levy
------------------------------
Name: Paul S. Levy
Title: Senior Managing Member
TPG IASIS IV LLC
By: /s/ Richard A. Ekleberry
---------------------------------
Name: Richard A. Ekleberry
Title: Vice President
TPG IASIS III LLC
By: /s/ Richard A. Ekleberry
---------------------------------
Name: Richard A. Ekleberry
Title: Vice President
TPG IASIS CO-INVEST I LLC
By: /s/ Richard A. Ekleberry
---------------------------------
Name: Richard A. Ekleberry
Title: Vice President
TPG IASIS CO-INVEST II LLC
By: /s/ Richard A. Ekleberry
---------------------------------
Name: Richard A. Ekleberry
Title: Vice President